How to Start Investing Safely in 7 Simple Steps (2024)

Investing for beginners can sometimes be intimidating, especially if you’ve tried to listen to experts on TV and didn’t understand a word they said.

The good news is that the majority of these experts try to sound smart on TV and make investing sound more intimidating and challenging than it actually is.

Why? Because they are wealth managers and if you are able to invest on your own, which you totally can, then they won’t have any customers.

However, the challenging news is that some people just dive into the markets and try to figure investing out on trial and error and end up losing all of their money. A lot of people try to invest on the basis of market noise, hype, and news, but it doesn’t work.

As a beginner, you need to understand that your success in the market doesn’t depend on how good at numbers you are, how carefully do you analyze the news, or how well do you understand the economy.

They all matter, but there are some important steps that you need to take in order to make your unique investment strategy that works for you. A unique investment strategy is crucial for securities market success.

In this blog, we’re going to discuss the 7 steps how to start investing safely for beginners. If you’re interested in building a safe & unique investment strategy for yourself, then stick until the end.

How to Start Investing Safely

While investing is not rocket science, and anyone can start it right away, it needs to be conducted on the basis of plans that are carefully developed to achieve your specific goals.

That’s why investing is not a one-size-fits-all, and everyone needs to have a different investment strategy. So without further ado, let’s get to how to start investing by developing your unique investment strategy in 7 simple steps.

Step 1: Meet Investment Essentials

The first thing to make sure of is that your investment strategy covers your basic necessities of life. Do you have your housing, food, clothing, transportation, taxes, emergency fund, all these covered? Because if you don’t, then you can’t actually start investing yet. You need to go ahead, make some cash, and then invest the surplus.

Investing can rarely make you a millionaire if you don’t already have a significant amount of capital, to begin with.

Investing income can’t be your primary source of income unless you invest huge amounts and receive thousands of dollars in dividends. So it’s necessary to have a primary source of income first that covers all your necessities and then invest the surplus amount of cash.

Calculating your risk tolerance is the most important step of investing. Today, we’re not going deep into that, but if you’re interested in learning more about it, then make sure you attend our free masterclass here.

Step 2: Establish Your Investment Goals

Why is it that you want to invest? Is it to accumulate retirement funds, enhance your cash flow, put money aside for kid’s college, or shelter yourself from taxes?

It is essential to establish your investment goals before you can start investing so that you can invest in the right assets that suit your specific goals.

One quick thing to keep in mind about investment and taxes is that capital gains are not taxed until they’re realized.

What that means is if you buy shares of a company and you’re in whatever percentage of gains, you don’t pay taxes on those gains until you sell your shares and take profit.

So it is important to plan your taxes in advance. Tax planning involves looking at your earnings, both current and projected, and developing strategies that will defer and minimize your taxes.

You must strike a balance between tax benefits, investment returns, and the risk that is involved because, at the end of the day, it is the after-tax return that only matters.

Step 3: Adopt an Investment Plan

Your investment policy statement has to outline your goals, when those goals are to be met and your risk tolerance.

There’s also a very important technique called the time value of money calculation, which can give you a more specific approach to your goals.

The time value of money helps you calculate the amount of money that you need today and the amount of return you’d need in a specific time period to reach your future goals.

For example, have you ever wondered if you save this amount of money in your investment account every year, how much will you have when you retire? Or if you want to pay for your children’s college, how much should you save every year?

These are the things that the time value of money helps you figure out. Now, we’re not going very deep into the concept because it’s beyond the scope of this blog, but you can learn more about it anywhere on the internet.

Step 4: Evaluate Your Investments

The next step is to evaluate your investments on the basis of risk, return and valuation, and plan your strategy accordingly.

For example, if you have a low risk tolerance, you might want to focus your portfolio on dividend paying stocks that are more established. If you have a higher risk tolerance, you may be able to focus your portfolio more on stocks that have a huge potential but have not yet proved themselves to wall street.

This step and the following three steps are what you should take every week on your own portfolio.

Don’t worry if you think you don’t have the time to do that because it just takes 1 hour to analyze a portfolio of 100 assets with all four steps. Your portfolio will probably have less than that.

Step 5: Select Suitable Investments

From previous steps, you now understand your risk tolerance and financial goals. In this stage, select suitable investments that provide acceptable levels of risk and adequate progress towards your goals.

It is the reason why everyone needs a different investment strategy, and you can’t rely on all those trading alerts and signals you find all over the internet.

Many people who share these signals might also show their portfolios where it is working for them, but that will still not work for you for the same reason that their risk tolerance and financial goals are different than yours.

Step 6: Construct a Diversified Portfolio

This is the step where all the fun begins. This is where you construct a diversified portfolio by combining assets and asset classes from different categories that are not perfectly correlated. In simple terms, you don’t wanna put all your eggs in one basket.

So, for example, if you’re someone young with a high level of risk tolerance, then asset classes like growth stocks, cryptocurrencies, and even forex works for you.

If you’re close to retirement or already retired, then asset classes like dividend paying stocks, ETFs, commodities, etc., might suit your risk tolerance and financial goals.

However, there’s no hard and fast rule as to which assets are good according to age groups. It totally depends on the individual what type of assets gives him satisfaction and peaceful sleep at night.

Step 7: Managing Your Portfolio

The last and forever going step is to manage your portfolio as necessary and as your life changes.

As you know, life changes, and so do priorities. Today, you might be a young, carefree individual who likes high-risk, high-growth investments, but tomorrow when you’ll have a family and kids, you might want a more secure future.

Every once in a while, preferably every year, you should reassess your risk tolerance and investment policy investment and see if your priorities are still the same.

If not, and you feel there are some changes required, then make sure the change is applied to your investment strategy as well as your portfolio.

Bonus: Business Cycle

One crucial thing to keep in mind is the economic and business life cycle. For example, look at the above chart.

Every economy has four stages: Expansion, Peak, Recession, and Trough. When the economy is expanding as we approach the peak, unemployment is relatively low, and inflation is on the rise. Inflation becomes the major concern for the fed, and they raise interest rates to counter it.

The rising interest rates continue till we reach the peak, when the GDP is strong, unemployment is low, and the economy is at its best.

As we move to the contraction phase, the GDP growth rate slows down, business profits decline, and unemployment starts to increase.

To counter this, Fed again lowers the interest rates, and at some point, we reach the Trough stage, which marks the end of contraction and the beginning of a new expansion period. This is how the cycle continues.

Now, the sole reason behind telling you all this was that when investing, one has to keep in mind the condition of the economy and where we are in the cycle to make informed decisions.

Also, while going through the ups and downs of the market and the economic cycle, you should remember that patience is a profitable virtue.

Do not overreact to the ups and downs that appear to be unavoidable and unpredictable. Instead, apply a consistent investment strategy over many years through many business cycles to remain profitable.